Overcoming the ‘Investing Gap’ for Women | Allworth Financial

Take a moment and think of the women in your life.

Your mother? Your sister? Your partner or wife? Yourself?

And if you were to ask each how they feel about investing, what do you think they’d say?

We came across some eye-opening statistics:

• According to a 2018 Fidelity survey, only 29% of women view themselves as an “investor.”
• In a separate study, about half of women say they’re not confident managing investments.¹
• Last year, consulting firm Willis Towers Watson found women rank saving for retirement as their #5 financial priority.

Saving for retirement can be pretty daunting if you’re not sure what you’re doing, or you haven’t been given the proper tools to make it happen.

Here’s a deeper dive into how women generally approach investing, including their strengths and weaknesses, and how we suggest moving forward to build a successful retirement.

Building a Foundation

First, let’s look at how the saving and investing habits of men and women compare:

• Men save 8.6% of their annual salary inside a workplace retirement account. Women save 9%.
• If you look outside of workplace plans (such as IRAs or brokerage accounts), women also save more.²
• From the decade spanning 2005 to 2015, women’s investment returns outperformed men.³
• A study from Cal-Berkeley found that, over a 6-year period in the 1990s, men day-traded stocks 45% more frequently than women.

Overall, women have a fantastic foundation of saving in place.

Yet women still lag behind men when it comes to their total portfolio – according to MarketWatch only 9% of American women have $300,000 or more saved for retirement.

This is called “the investing gap.”

Lack of growth

While the data shows women tend to be really good at setting money aside, the data also shows women often have their money in potentially inappropriate investments.

In fact, according to BlackRock, women keep about 71% of their investments in cash.

Essentially, many women aren’t taking enough risk with their money.

Why?

It could boil down to a lack of investing knowledge, as reflected in some of the earlier statistics cited. Or it could be a fear of riskier investments like stocks.

But no matter the culprit, the numbers say women simply aren’t investing their savings.

Because while cash might seem like a “safe” investment, even it comes with a risk: you lose purchasing power if the interest rate on a cash account isn’t keeping up with inflation.  

(Inflation is why something that cost $1,000 back in 1999 now costs just over $1,500 and will cost close to $2,500 in another 20 years [assuming a 2.5% annual inflation rate]).

Holding cash might offer a feeling of security. But because you can buy less and less with the same amount of money over time, that safety is an illusion.

And for a woman who’s holding too much of her retirement money in cash? This “investing gap” is bad news if she’s facing a 20, 30 or even 40-year retirement.

All the right pieces

On top of all that, women are already at a financial disadvantage when planning for the future.

Consider these three basic facts:

• Women spend fewer years in the workforce than men – 29 years versus 38 years.⁴ (This translates to less lifetime income.)
• Women, on average, live longer than men, meaning they need more money because their retirement costs are higher.
• But because women live longer, close to 9 out of 10 will be forced to take sole responsibility of their money and investments at some point over the course of their lives.

This combination of not taking an appropriate amount of risk, earning less, and living longer can be disastrous if not properly addressed.

It’s not all doom and gloom

Research has found that women:

• Tend to hold investments for long periods of time instead of trying to ‘time’ the market.
• Are often goal-oriented instead of performance-oriented.
• Usually stick with a plan.
• Typically diversify their investments better than men.⁵

Recommending a long-term focus, that you not jump in and out of the market, and emphasizing savings diversification is, not coincidentally, how we advise our clients each and every day.

What to do moving forward

Historically, stocks have been the only investment to consistently outpace inflation. But stocks come with risk, as well. So, how does someone approaching retirement – especially a woman – bridge this gap?

Everyone should be investing at the intersection where their willingness to take risk meets their need to take risk.

This is why working with a credentialed financial advisor is key. He or she can help determine the appropriate amount of risk to take that’s suitable for your needs and goals.

When it comes, not just to women, but all savers, do the following:

• Continuous education via our free resource center
• Always save enough to get your company 401(k) match
• Saving outside a 401(k) in an IRA, Roth IRA and/or taxable brokerage account
• Sticking with low-cost funds
• Diversifying between stocks, bonds, and other investments (if a Target Date Fund is available in your 401(k), consider using it)

Don’t let fear or the unknown hold you or a loved done back.

Get educated about your options for a better financial future, today.

 

¹Market Watch: Why are women retiring with up to $1 million less than men? (5/2/18)
²Fidelity: Who's the Better Investor: Men or Women? (5/18/17)
³CNN Business: Female investors often beat men. (2/19/15)
⁴TIAA-CREF: Income Insights: Gender Retirement Gap (10/16)